China's Wen warns of 'difficult' year

China's Premier Wen Jiabao has warned of a difficult start to the year, amid rising concerns over a potential sharp slowdown in the world's second largest economy.

He also reiterated pledges to expand domestic demand as authorities try to ward off the effects of crises in the United States and Europe – key markets for China's export-dependent economy.

"The first quarter of the year may be quite difficult," Wen told business people to mark the new year, according to a statement by the State Council, China's cabinet.

"We are now in a situation where pressure from an economic downturn and high prices both exist," he said.

Wen added slowing external demand and the rising cost of doing business domestically further complicated the situation when compared with the financial crisis in 2008.

"We have a relatively cool market. This is the core of current problems," he said.

Beijing is anxious to prevent a sharp slowdown in the economy but at the same time it wants to avoid reigniting inflation, which hit a more than three-year high of 6.5 per cent in July but has since slowed.

China's economy grew an estimated 9 per cent or more year-on-year in 2011, the official Xinhua News Agency said in a commentary late Saturday – slower than 2010, when annual growth was more than 10 per cent.

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In a bid to boost growth and counter turmoil in Europe and the United States, leaders in December cut the amount of money banks must hold in reserve for the first time in three years.

Last month, China's leaders also vowed to maintain "prudent" monetary policies after a major meeting to set the nation's economic course in 2012, and agreed to "guarantee steady growth" – a pledge reiterated by Wen.